Family Care Agreements: Sort Out the Financial Details Upfront!

When Andrew* shifted in with his elderly parents, he gave little thought to the impact this might have on his retirement, midlife earnings, or ability to afford a home of his own one day.

So he was astonished when, two days after the death of his 90 year old father and before the funeral, Andrew was told by his mother and brother that he had just a few weeks to find a new home. His Mum was to enter residential care, and his parents’ house was to be sold immediately.

“If you’re renting you’re given at least four weeks’ notice. I went from anger, to red hot anger, to black anger, to bitter hatred towards my family. I was devastated.”

Andrew believes his mother was pressured to sell her home by his brother. The siblings have a strained relationship, and their Mum has got caught in a familiar tug of love at one of life’s most vulnerable times for older people.

Andrew, who runs an online business from home, regrets not having a formal understanding with his family so everyone would be clear about care and living arrangements when the time came.

“I sold my house and used much of my savings over the years to help with my parents’ health and household costs. My brother did not contribute financially or practically. He came for visits but his life didn’t change as mine did.”

“I always assumed everyone would be fair and loving when it was time for us all to move on. I didn’t think I had to protect myself from my own family!”

But there’s the rub.

Andrew’s all too common experience is a factor behind the trend for adult children to agree to caring responsibilities for parents who need their support … but only if their needs and life implications are considered too.

Increasingly, this is covered by so-called family care agreements, which spell out what will happen when the family member(s) they support die or need formal care.

This can be a repugnant concept for those who strongly believe that caring is a moral duty, or a natural outcome of familial love.

But the era of unquestioned 24/7 sacrifice, especially in cases where years of care will be needed, is changing as society changes.

Jenny’s* experience with her family was very different to Andrew’s.

Before she left her job to support her 86 year old mother, Jenny was a senior bank manager with years of six figure earning ahead of her.

When her Mum had a fall, and would have required residential care, mother and daughter decided to live together in a one level Auckland home they purchased together.

The women both sold their properties, and are joint owners of the new house. Should Jenny or her Mum die, the survivor will inherit the other’s share of the property. They share all other household costs equally, and are responsible for their own health expenses. Jenny’s brother and sister, who live overseas, support the arrangement.

“They both work full-time and are well aware of what a five year break from employment means, financially and in terms of career advancement at my time of life,” says Jenny “I don’t know how long Mum will need my help, but we arrived at our strategy easily and are both comfortable with how it’s working.”

“I’m 50 and I’m not sure what opportunities might be available when I return to the workforce. But this was the right decision for me. My relationship with my Mum is more important than my job.”

Jenny is fortunate that her family has avoided the tensions that can occur when an adult child agrees to a long-term caring role. A parent will often not get around to (or even think about) changing their will to provide a greater distribution of assets to a caring child in recognition of their services. This can result in resentment by the carer, who may feel slighted at being treated the same as siblings who have provided little or no support to the parent.

In some countries, families are setting up caregiver contracts, in which adult children or other relatives are hired, for modest salaries, to help elderly or disabled family members with high needs. Alternatively, agreements specify that a larger portion of any estate will go to the family carer in recognition of their years of help.

These arrangements, which are also called personal services or personal care agreements, can help reduce the size of a parent’s estate and thus improve their chances of becoming eligible for health benefits. The agreements can also minimise battles between siblings and other family members, because everyone is aware of the terms and conditions.

For many families, says The Wall Street Journal, the contracts simply acknowledge the time, effort and money that family members often spend supporting a relative with health needs. There aren’t any statistics on how many family members are compensated for caregiving.

But here, and worldwide, hundreds of thousands of the population provide hours of voluntary care for family members and friends each day. Carer numbers are growing as the population ages, and with the trend to stay living in the community as we age.

Some 44.4 million adults (21% of the United States adult population) provide unpaid care to seniors or adults with disabilities, according to a 2004 study by the National Alliance for Caregiving, a research and advocacy coalition, and AARP, the Washington advocacy group for seniors.

On average, those caregivers provide 21 hours of support a week. The average length of time spent providing care is 4.3 years.

There was a 12% increase in the raw number of New Zealand carers between Census 2001 and Census 2006 … signalling the sharp rise in carer numbers demographers have long predicted.

Many New Zealand carers, like those in other countries, must balance their family duties with paid employment. According to Census 2001, 88% of Kiwis who identified as carers of someone who is ill or disabled, living in their home or another location, are of workforce age (15 to 64). Almost 10% of 15 to 24 year old New Zealanders identify as carers. For them, long-term caring can impact their education and employment prospects.

While family caregivers often don’t expect a salary for their efforts, recognising their contribution is important. Lack of recognition is a factor behind many bitter family disputes after a parent dies or enters residential care. Clarifying contributions and financial recognition in a family care agreement can avoid such disputes, and the rifts that follow.

It’s best that parents, their children, and other interested parties discuss this in advance, so nobody gets angry after a parent dies.

“After what happened to me I wanted to form a Carers Union as I felt I was on my own with no rights,” says Andrew, who (like the other carers in this article*) has asked to remain anonymous.

“I feel obliged to tell every carer not to take on the role, as all the effort and sacrifices they make may not be considered at their time of greatest vulnerability. I would definitely recommend that they look into a family agreement before they give up their employment or move in with their parent.”

Andrew cared for his father for six years, receiving a carer’s benefit from Work and Income for the final three years. He also supported his mother, who is legally blind … and the family cat.

“Everyone forgets the cat”, he said wryly.

By sharing his story, Andrew hopes other carers will be forewarned.

“Those mythical ‘wolves and vultures circling’ can become reality sooner than they think.”

“Caregivers seem to be a particular type of person. Their reasons would not be anything else other than a sense of duty, compassion, tenderness, love and affection. Carers can’t see this sort of thing happening.”

“I don’t claim to be a perfect caregiver, but I certainly tried my best, and like to think that my Dad had a better end to his life for my being there for him”.

“I think Mum is being led along here and I feel very sad for her. She is being exploited, too.”

He believes care agreements are a sound way to give seniors with health needs more years at home, ensuring that everyone has a voice in decision-making, including the primary carer.

“If I had to do it all over again, I would see a lawyer who specialises in elder planning and organise a family conference to discuss who would do what, and who would pay for what.”

“I spent tens of thousands of dollars to ensure my parents could continue living at home. I gave up several hundred thousand dollars of income to care for them. In the end, there was no recognition of my contributions. I didn’t even have a say about what kind of financial contribution would be fair, so I could make a new start.”

Andrew isn’t clear about the tax status of his Mum’s financial gift once the house is sold. He is a seeking advice from a solicitor and an accountant.

“My contributions of money and care allowed my parents to stay in a house that appreciated massively while I lived there. Caring has had a big financial cost for me but I have no regrets. I did the right thing, and am ready to move on.”

For a carer contract to pass muster with authorities, it must follow certain formalities. For one, you can’t pay a carer an inflated rate in order to shift money out of your estate. Instead, specify what duties the carer is expected to perform. Contact local home care agencies to establish the market value of those services, which can include preparing meals, bathing and dressing, transport, cleaning, coordinating medical appointments, and dispensing medications.

The cost of care varies depending on location and the services being performed, and can range from about $15 an hour to more than $100 an hour.

Insurers or public agencies may presume that a transfer from a parent to a child is a gift unless there is proof to the contrary.

Financial gifts may have tax implications. Seniors and their families should consult a solicitor to determine if a care agreement would be beneficial for their situation.

It’s important to set up the carer contract when the person needing support is of sound mind. The contract should specify whether the payment will be done in one upfront lump sum based on the senior’s life expectancy or in regular weekly or monthly payments. It’s best to have an arms-length written agreement outlining the services to be provided, and the payment to be made. This will help to avoid disputes later, and keep everyone happy.

Silver Linings

Andrew’s story has a positive ending. After several months of uncertainty, his Mum has decided to live with Andrew’s brother rather than enter residential care. The family property will be sold, and Andrew will be given a six figure lump payment from his Mum, as thanks for his years of care for both parents. She and her other son arrived at this decision without consulting Andrew. His brother will receive the same amount.

Andrew could not afford to buy the family property, but has had time to make new living arrangements. Through a friend, he met a woman who wanted a flatmate. They both enjoy dancing … and are dating. Best of all, Andrew has discovered he has more resilience and confidence than he expected.

“I thought I would crumble into a heap and struggle to find my feet, but that hasn’t happened. I’m job hunting, and thankful for the support of my friends.”

“I have an opportunity to make a new start, but I worry about Mum. I think she is making a mistake. I hope I am wrong.”

“I accept that my relationship with my brother might never recover. His behaviour has been appalling.”

Marcus

At the age of 65, Marcus* has been out of the workforce for 10 years. He left his job to care for his father after a series of strokes affected his balance, speech, and ability to live independently at home. When Marcus’s father died last year, his four siblings thanked him for his years of care…and promptly consulted a real estate agency to sell the family home.

The value of the home has risen substantially in recent years, and is now worth over $700,000. “It’s ironic that had my father entered residential care, the house would have been sold and there would be nothing left to fight over”.

“I would like to buy the house and feel my family should help me do so at a reduced market value.”

“This has caused a huge argument among us. My sister is supporting me, but the others say I have had a free ride for 10 years not paying rent. There is not one iota of recognition from them that caring for Dad was a 24 hour situation.”

All of his siblings own their own homes. Marcus has modest savings, and house prices have shot beyond his ability to afford a home.

“We’re trying to resolve this but some terrible things have been said that can never be unsaid.”

With his sister, Marcus has organised a family meeting to negotiate a fair settlement with his other siblings.

“I think we can reach an agreement, but I kick myself every day for not planning this at the start.”

Family Contracts: Things to Think About

With a caregiver agreement, the carer is typically compensated at a fair market rate during the family member’s lifetime. Additionally, carer agreements can include a provision whereby the family member in need of support agrees to bequeath or give the family carer a portion of their estate. If the family member is living in the carer’s home, the agreement may provide that funds will be available for necessary renovations so the family member can live there safely.

Other questions to consider when drafting a Family Care Agreement

Will the contract be for a specific time, or for life?

Will the carer receive compensation as a lump sum or in periodic payments?

What specific services will be provided?

What will happen when the carer takes a break? What happens if a carer ‘resigns’, becomes incapacitated, or dies?

Are state payments and subsidies for the carer included in family compensation ‘packages’?